When Patients Can't Pay

Todd Tamalunas is good and ready for the economic recovery to kick in. Since last year, the vice president of practice management for a 35-physician primary-care group in Spartanburg, S.C., says his office has experienced a three-fold increase in bad debt — expenses incurred when the practice can't collect for services already rendered. "The economy supposedly is on the upswing, but we're not experiencing that here," Tamalunas says. "Two weeks ago, one of our doctors had four patients in one day tell him they just lost their job."

Tamalunas is not alone. Given the rise in unemployment nationwide, most practices are reporting a sharp increase in the number of patients who are uninsured or simply unable to pay what they owe. While physicians often perform charity work, offering no-cost services to the indigent, they can't afford to treat everyone who's fallen on hard times for free. After all, healthcare is a business — with employees to pay, computers to buy, and overhead to cover.

Lynn Wolff, administrator of Georgia Hand Shoulder and Elbow in Atlanta, a five-physician specialty practice, says that economic reality weighs heavily on doctors, who are programmed to help others. "It's a real burden for the physicians because they want to take care of everyone without regard to economics," she says. "Now, they're put in a position of having to make those choices. There's a lot of gray area." Fortunately, there are a number of tactics you can use as a manager to help limit your practice's losses, get patients the care they need, and keep your balance sheet in the black.

Tell them what to expect

Like most practices, Wolff says her office staff determines upfront whether patients are insured and if their insurance is accepted by the practice. "If they don't have insurance, we tell them what it's going to cost for an office visit or scheduled surgical procedure and we have them pay at the time of the service," she says. "It's up to the patient to decide whether they wish to proceed." Sometimes, she notes, patients indicate they can't afford to be seen and if the doctor won't treat them for free they will refuse care. "In those cases, the doctor might bring staff members in to go over costs, but it will ultimately come down to whether the physician thinks it's okay to let them walk away."

Jamie Claypool, president of J. Claypool Associates, a practice management consulting firm in Spicewood, Texas, says that's good policy. Full disclosure of costs encourages patients to plan ahead and pay more promptly. "It tells them what to expect," she says. "The more informed the patient is about the approximation of their fees, the more likely they are to pay. It's very costly to collect when they don't [know]." According to industry estimates, she says, the average practice spends $35 each time they send an invoice — incurring costs in staff labor, printing, and postage.

For that reason, Tamalunas says his practice offers a 20 percent prompt-pay discount, which has helped to increase his collections rate to 95 percent from 70 percent over the last few years.

Make a policy

All practices should also establish a policy that dictates how they'll collect unpaid balances, develop scenarios in which they might consider discounting their rates, and outline how they'll handle charity cases going forward. In private practices, like Georgia Hand Shoulder and Elbow, many physicians get paid through an "eat what you kill" system — meaning they're compensated based on how much they earn. Since it's their own time and money, it's easier for them to determine unilaterally whether they're willing to provide free or discounted care. "We try to have a firm policy but once they [patients] get in the office, if the doctor feels it's something they need to have done we're not always as strict as we try to be," says Wolff.

Larger groups may have less flexibility — especially if they are publicly held. Tamalunas, for example, says the physicians in his office (who are paid based on work RVUs (relative value units) are asked as a matter of policy not to treat those who can't pay for their own care. Instead, the doctors are instructed to direct patients in need to nonprofit groups like their community clinic, the nursing core operated by their local churches, and a government agency that provides care to the uninsured. "We work with our uninsured patients to help direct them toward the resources they need instead of saying, 'Not our problem,'" he says. "It's tough right now. We truly do care about each of our patients." Some of the physicians in his practice, in fact, volunteer their time after-hours with those same nonprofit groups.

Whatever your policy, Claypool says practices should put it in writing. "The physician shareholders should decide this together and include it within their policies and procedure manual for the practice itself, but you should also create a document that gets presented to patients," says Claypool. "That document should explain how the balance of an account is treated after insurance is paid, it should inform them that they are responsible for the balance, and it should identify the acceptable methods of payment — check, cash, MasterCard, Visa, etc. By signing that document, it establishes that they understand what their financial obligations are to the practice."

Payment plans

Depending on your practice, you may also consider setting up a payment plan for patients who are struggling to meet their financial obligation to your practice, or are unable to finance pricey procedures in a single lump sum. "If it's a surgery, we try to work out a payment plan, which is happening more often," says Wolff. "We've had patients pay us $25 a month for years."

Though necessary at times, especially when the procedure is already performed and you risk collecting nothing, Claypool warns payment plans are less than ideal. Remember, she says, you're not a bank, which has the resources to perform credit checks and collect on unpaid debt. Her advice? Leave it to the lenders. "A lot of doctors are unaware that there are third parties that will help finance a patient's bill so it takes the doctor out of the middle of it, away from being the person to finance it," says Claypool. "When the bill is going to be substantial, direct your patients to third party lenders like carecredit.com or mymedicalloan.com that finance the patient's bill."

Reed Tinsley, a certified public accountant and medical practice analyst in Houston, agrees practices should avoid payment plans where possible. "Instead of having patients pay $5 a month, give your billing department settlement rights to get that debt off your books," he says. "Call those patients and tell them that if they can pay 50 percent of what they owe you'll call it even. If they can't do that, go to 45 percent. The administrative burden of trying to collect on old invoices is ridiculous."

He notes, too, that just because patients self-pay for services does not necessarily mean they are struggling financially. "I see a lot of practices make that false presumption that just because someone is out of work or doesn't have insurance that they don't have any money," he says. "My philosophy is to assume that they can pay and work from there."

Get creative

Though less common, it may be possible to arrange for an exchange of services rather than cash payment — also known as the barter system. Perhaps your patient is an artist. Knock half off her bill in exchange for a new painting for your lobby. Maybe he's a plumber who can fix your leaky sink, a golf coach who can help you with your swing, or an accountant who could help you with your taxes. If the patient notes she's struggling financially, it's not outside the bounds of professionalism to suggest a cash-free exchange of services in which you both come out ahead.

Most practices these days are facing a higher percentage of bad debt on their books, as cash-strapped patients fall behind on their payments. However, by drafting a financial policy, disclosing costs to patients upfront, and getting serious about collections, you can help position your practice to continue meeting the needs of your patients without going down with the ship.

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for more than 12 years. Her work has appeared on CNNMoney.com, Bankrate.com, and Health Family magazine. She can be reached via [email protected].

This article originally appeared in the January 2011 issue of Physicians Practice.